First Apple, Then Microsoft: Now Google Targets Retail

When Apple (AAPL) CEO Tim Cook appeared at the Goldman Sachs (GS) 2013 Technology Conference last week, the conversation covered was illuminating rather than revealing. Many on Wall Street expected Mr. Cook to announce that Apple would either increase its dividend, upsize its share repurchase program, or both. While Apple already pays a hefty annual dividend — $10.60 per share — and has repurchased $1.95 billion in shares, many are expecting more to come. I’d expect something to be announced at the company’s annual shareholder meeting slated for February 27.

During the fireside chat at the Goldman conference, Tim Cook reminded us what a fertile asset the company’s retail stores are. As anyone who has stepped inside of them, it’s a wonderland of sorts in which you can touch and play with the company’s products be they iPhones, iPods, iPads, Macs or any number of accessories. Per Mr. Cook, last quarter Apple welcomed 120 million people across its 400 stores. According to metrics from research and consulting firm Retail Sails, Apple makes roughly $6,050 for every square foot of store space — that’s more than twice Tiffany & Co.’s (TIF) $3,017 per square foot.

With metrics like that it’s no wonder that Microsoft (MSFT) tried to replicate Apple’s retail footprint. In July of last year, Microsoft announced it would have 44 retail stores in place by the end of June 2013. I’ve visited one of the stores in the greater DC-area and I have to say there was ample hardware products around, but it failed to capture the feel of an Apple Store. I’m not the only who seems to feel that way.

Now it seems that Google(GOOG) may be entering the retail fray with stores of its own. Like Apple and Microsoft, Google probably wants consumers to get a better feel and hands-on experience with its own hardware products — Chromebooks, Nexus tablets and smartphones – as well as similar products offered by other hardware vendors like Samsung and HTC to name a few.

The question is whether Google’s retail effort with drive consumers to its products like Apple’s retail footprint has, be a ho-hum effort like Microsoft’s or go over like a lead balloon. Failure in the retail space is not new territory for hardware makers. Let’s remember that one-time PC maker Gateway ventured into retail with its Gateway Country Stores, but failed to get traction and eventually closed its retail locations and laid off 2,500 staffers.

Another reminder in how hard the retail industry can be found in Ron Johnson and the dismal performance of J.C. Penney (JCP) over the last several quarters. Goes to show, if its not done right it might be better not to do it at all.

While I think that Google will have success with its retail storefronts, the collective fallout from Apple’s, Microsoft’s and Google’s retail efforts along with Amazon’s (AMZN) online shopping platform are going to take their toll on Best Buy (BBY), hhgregg (HHG), RadioShack (RSH) and others. That’s probably why Best Buy has been remodeling stores with large kitchen related appliances and displays. hhgregg on the other hand has been emphasizing its kitchen and laundry appliances as well as furniture and other products.

It seems to me that while Apple, Microsoft, Google and Amazon will continue to take consumer electronics market share from Best Buy, hhgregg and others, Best Buy and hhgregg are looking to take on Sears (SHLD) and others as they reposition their business.

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Google should simply acquire Best Buy and re-brand it. Valuation of Best Buy is very attractive right now and it will take too long and cost much more to build out a retail network of the same scale as Best Buy.

Excellent avenue to showcase and sell Google products and services with the added opportunity of converting some of the sales from other brands (electronic consumer goods sold at BBY) to Google products and services. Similar to what Target does with store branded products for consumer items.

@Shaker – Interesting concept except that there are too many big box Best Buy stores out there. Consider how big most Apple stores are and how profitable they are by the square foot. If Google were to buy some of the smaller ones that may make more sense, but those are not prime locations.

@Ukjaybrat – That’s a great point….Best Buy’s story is not yet finished one way or the other and there is ample empty commercial real estate that could serve Google’s needs. The other option would be a store-in-a-store set up that Apple has with Best Buy and to some extent Target.

Great piece, Chris, thanks. It feels like there are some things that would be great to have in a store but not sure there’s enough to fill a Best Buy. I like the idea of Best Buy showing the new Leap Motion controller when that comes out, and when I was in one of their stores recently I could see the new (to me) Kindle Paperwhite in a way that online did not provide. I could see the smaller ones — sort of an electronic version of Bonobo’s.